Industrial Gases Praxair, Inc. Scott Sanderude Vice President, Global Market Development Citi Chemicals for the Non-Chemist Conference November 26, 2012
Scott K. Sanderude Vice President, Global Market Development Scott K. Sanderude was appointed global vice president, Market Development, for Praxair, Inc. in 2011. He leads the company s Global Market Network team of industry experts who, with the regional business development teams, help provide efficient global deployment of applications technology and marketing support functions. Sanderude joined Praxair in 1999 as vice president, Food and Beverage Markets. He became vice president, Marketing and Business Development, for North American Industrial Gases, Praxair s largest business unit, in 2001. Prior to joining Praxair, Sanderude was global director of Marketing and Sales Capabilities for the Dow Chemical Company. Sanderude holds a bachelor of arts degree in business administration from Principia College, Illinois, and a master's degree in business administration from Harvard University. Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-2-
Forward Looking Statement This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management s reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the performance of stock markets generally; developments in worldwide and national economies and other international events and circumstances; changes in foreign currencies and in interest rates; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; catastrophic events including natural disasters, epidemics and acts of war and terrorism; the ability to attract, hire, and retain qualified personnel; the impact of changes in financial accounting standards; the impact of changes in pension plan liabilities; the impact of tax, environmental, healthcare and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of investigations, litigation and regulatory proceedings; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; future financial and operating performance of major customers and industries served; the impact of information technology system failures, network disruptions and breaches in data security; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from the projections or estimates contained in the forward-looking statements. The company assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances. The above listed risks and uncertainties are further described in Item 1A (Risk Factors) in the company s Form 10-K and 10-Q reports filed with the SEC which should be reviewed carefully. Please consider the company s forward-looking statements in light of those risks. Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-3-
Global Industrial Gas Market Total Industry Sales: $74 billion Praxair 14% Other 23% Taiyo Nippon Sanso 4% Air Products & Chemicals 14% Airgas 4% Linde 20% Air Liquide 21% Source: Spiritus Consulting 2011 Excludes non-gas sales such as Praxair Surface Technologies Consolidated industry with few large, global players Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-4-
Industrial Gases are Fundamental to Many Industries Aerospace 3% Food & Beverage 6% Other 11% Manufacturing 24% Healthcare 8% Electronics 9% Metals 18% Chemicals 10% Energy 11% % of Praxair 2011 sales Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-5-
Products We Make We supply customers with atmospheric, process and specialty gases, high-performance coatings, and related services and technologies Atmospheric Gases O 2 N 2 Ar Xe Kr Produced when air is purified, compressed, cooled, distilled and condensed Oxygen, nitrogen, argon and rare gases Process & Specialty Gases CO 2 He H 2 Produced as by-products of chemical production or recovered from natural gas Carbon dioxide, helium, hydrogen, semiconductor process gases, and acetylene Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-6-
Components of Air Nitrogen 78.09% Oxygen 20.95% Argon, 0.93% CO2 0.03% Other 0.0024% Neon 0.0018% Helium 0.0005% Krypton, 0.0001% Xenon, 0.00001% Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-7-
Vertically Integrated System On-Site/Pipeline Supply Merchant Liquid (O2, N2, Ar) Packaged gas facility (pure gases, medical, specialty gas blends) Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-8-
Oxygen Systems Modes of Supply 99.5 Purity % O2 Liquid Oxygen VPSA (non-cryo) Cryogenic 20 TPD 250TPD Volume Customer demand matched with optimum supply systems Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-9-
The Air Separation Process Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-10-
Air Separation VPSA (Non-Cryogenic) First commercialized in 1960 Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-11-
Praxair Chicago Area Pipelines 25,000 tpd O 2 / N 2 capacity Largest liquid argon and rare gases production center in North America 230MM scfd H 2 capacity Praxair Whiting Integrated liquid hydrogen production 130 miles of pipeline 30 customers Advanced pipeline control center Praxair East Chicago Praxair Lakeside Praxair Burns Harbor Facilities and Customers Praxair Customer Pipelines Oxygen Nitrogen Hydrogen Argon Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-12-
Hydrogen a Process Gas Sulphur, LA Texas City, TX Praxair Steam Methane Reformers Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-13-
How is Hydrogen Produced? Natural Gas / Naphtha Coal / Petcoke Oxygen Steam Methane Reforming (SMR) CH 4 + H 2 O CO + 3H 2 Water - Gas Shift CO + H 2 O H 2 + CO 2 Purification (PSA) Process choice determined by feedstock availability / cost Gasification significantly more capital intensive Chinese refineries increasingly using gasification Limited natural gas supply Gasification C n H m + (2n + m)/4o 2 nco + m/2 H 2 O Gas Treatment Water - Gas Shift CO + H 2 O H 2 + CO 2 Purification (PSA) H 2 H 2 SMRs continue to dominate within refining -14-
Helium a Process Gas Praxair - A Fully Integrated Helium Supplier from Source to Customer Limited number of sources; global supply chain with specialized equipment Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-15-
Merchant Liquid Supply Systems Sized for customers specific requirements Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-16-
Packaged Gas Smaller individual volumes; significantly metal fabrication/welding Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-17-
Transportation Vehicles Tube Trailers Liquid Trailers Pallet Truck Microbulk Praxair Services Truck Box Truck Driven by productivity Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-18-
Production and distribution density Praxair: largest and only fully-integrated industrial gases company in North America 500 production plants 3,000 distribution vehicles Fully-integrated supply system Canada Strength across all three countries: U.S., Canada and Mexico Mexico USA Existing Facility Pipeline Backlog drives reliability, growth, and profitability * Source: S&P Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-19-
Role of Technology at Praxair We continually drive cost reduction New supply systems with reduced capital and operating cost Efficiency of existing infrastructure We grow our business by developing and commercializing new applications technologies Existing customer base looking for solutions Expand our markets Industrial gas solution typically lower capital or operating cost New technologies drive growth and cost reduction Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-20-
Continuous Improvement in Plant Design Product line plants >90% of plant builds Flexible platforms Increased sizes for gasification Technology Roadmap Distillation Heat transfer Pre-purification Turbomachinery 45+ programs through 2015 Product Line Plants Low Purity Oxygen 10-250 TPD High Purity Oxygen Oxygen Cost Index ($ per ton O 2 ) 0.8 0.6 Up to 30% improvement 0.4 over 2006 3 + % capital and energy savings p.a. 2012 2006 2008 2010 500 3000 Plant Size (TPD) 3,000TPD Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-21-
Applications Technology: Creating Value for Customers Combustion Welding Steel Fuel Savings, productivity, emissions reduction Food & Beverage Productivity, quality, fume reduction Energy Productivity, energy savings (DRI,PCI, CO-jet) Healthcare Greater yields, less dehydration losses Efficiency and productivity in natural resource use Full range of medical gases, services and technologies Drive growth at a multiple of industrial production Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-22-
Increasing Gas Intensity Two Examples Argon intensity - Welding (CF argon per lb consumables) O 2 Intensity - Steel (scf O 2 / ton steel) 10 5000 W. Europe 4000 5 United States China 3000 2000 1000 Increasing Blast Furnace injection Water Cooled lances Burners Foamy Slag CoJet Stove Oxygen and DOC DOC 0 1980 1990 2000 2011 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Integrated Mills Minimills Source: Praxair estimates Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-23-
Unique Revenue Model On-Site/Pipeline 25% 15-year take-or-pay contracts Indexed to energy, inflation, currency Merchant Liquid 32% Exclusive supply agreements Sourced as by-product from on-site Packaged/Medical 27% Cylinder rental and specialty gas focus Sourced as by-product from bulk Integrated supply & contract terms drive high ROC Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-24-
Selective Geographic Focus 15% 52% 13% 20% Excellent geographic footprint well-positioned for future growth 2011 Sales Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-25-
Praxair Key Growth Drivers Emerging Emerging Economies Economies Energy Energy Environment Execution Infrastructure development & domestic consumption Migrating application technologies Outsourcing of captive production Global growth of refinery hydrogen Coal gasification in China Oil and gas well services Air, water and waste regulations Development of alternative fuels Resource-efficient solutions Low cost product-line plants Sustainable productivity Capital project execution Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-26-
Project Backlog Backlog by Market 8% Energy 43% 44% Manufacturing 26% Metals 12% 9% 39% Electronics Chemicals 9% 11% H 2 ASU 1.2B Backlog ($B) 2.7B 2.2B 1.8B 2.6B $ 2.6B - signed, long-term contracts with customers Solid customer bidding activity 2006 2008 2010 2011 3Q12 Driven by emerging economy and energy markets Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-27-
Consistent Outperformance Indexed EPS 16% CAGR Unique Revenue Model No speculative capex Praxair S&P 500 8% CAGR Long-term contracts 1992 1996 2000 2004 2008 2012F* No commodity pricing Critical product, but low percentage of customer s cost stack High ROC and cash flow Operating Cash Flow $2.5B 11% CAGR 1992 1996 2000 2004 2008 2011 Recession Steady earnings growth through economic cycles * Source: S&P Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-28-
Principles of Sustainable Development Governance and Integrity Maintain strong systems and a culture of global corporate governance, compliance, ethics, human rights, integrity and accountability. Strategic Leadership Stay current with, and take advantage of, emerging global opportunities, developments and challenges to position Praxair for the future. Customer Commitment Focus relentlessly on the delivery of customer value through continuous innovation that helps our customers enhance their product quality, service, reliability, productivity, safety, energy efficiency and environmental performance. Environmental Responsibility Achieve continuous environmental performance improvement and energy efficiency in our operations. Employee Safety and Development Provide opportunities that allow employees to develop to their fullest potential in a creative, inclusive and safe environment. Community Support Participate in community development in regions where we operate. Financial Performance Maintain year-on-year recognition from shareholders and stakeholders for top-tier financial performance. Stakeholder Engagement and Communication Partner with internal and external stakeholders to achieve a strong, secure and sustainable society, economy and environment. Citi Chemicals for the Non-Chemist Conference - NYC 11/26/12-29-